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The Consequences of the Currency Reform in Western Germany

Abstract

Following military collapse both in 1918 and in 1945 Germany presented two economic phenomena indicative of the destruction of economic life. In the twenties an open inflation occurred. For a relatively short time German money lost its value and purchasing power. This period of a completely open inflation was limited by a currency reform of a particular kind. Instead of cancelling the money in circulation the volume of money was increased by introducing a new stable money, the so-called Rentenmark. At the same time, the old money in circulation had been devaluated at the rate of one billionth of its face value. This controlled monetary experiment as well as the preceding huge inflation have found a place in the history of money. On account of the undoubted success of the devaluation experiment in 1923, the opinion seems to prevail that a devaluation is the best, if not the only way to reform the currency.

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1 Cf. Bresciani-Turroni Constantino: The Economics of Inflation, a Study of Currency Depreciation in Postwar Germany (London, 1937).

2 Cf. Donner Otto, “Grenzen der Staatsverschuldung,” Weltwirtschaftliches Archiv, Vol. 56, p. 183 f. (Jena, 1942).

3 Cf. Gerloff Wilhelm, Die öffentliche Finanz, esp. the chapter on the public credit (Frankfurt, 1943).

4 Cf. Eucken Walter and Meyer Fritz F., “The Economic Situation in Germany,” The Annals of the American Academy of Political and Social Science, Nov. 1948, p. 60.

5 I am indebted to Dr. Gerhard Colm, Council of Economic Advisors, for the discussion in the summer of 1949 from which the main concept of the difference between a currency reform as a measure of economic policy and a technical experiment was derived.

6 Cf. Heller Walter W., “Tax and Monetary Reform in Occupied Germany,” National Tax Journal, 1949, p. 277.

7 The Homburg plan was published in December 1948 by the German Administration Authorities.

8 Among the references which may be consulted are Lutz F. A., “The German Currency Reform and the Revival of the German Economy,” Economica, 1949, pp. 122142;Klopstock Fred H., “Monetary Reform in Western Germany,” Journal of Political Economy, 1949, pp. 277299;Mendershausen Horst, “Prices, Money and Distribution of Goods in Postwar Germany,” American Economic Review, 1949, pp. 646672;Heller Walter W., “Tax and Monetary Reform in Occupied Germany,” National Tax Journal, 1949, pp. 215231.

9 Economic Cooperation Administration, Fifth Report to the Congress (Washington, 1949), p. 18.

10 Economic Cooperation Administration, European Recovery Program (Washington, 1949), p. 3 f.

11 Cf. Monatsberichte der Bank Deutscher Länder, October, 1949, p. 73.

12 Cf. Siebrecht Valentin, “Woher die Arbeitslosigkeit,” Wirtschvfts Zeitung, July 16, 1949.

13 For these and the following figures see Monatsberichte der Bank Deutscher Länder, September-December 1948.

14 Cf. Lutz F. A., “The German Currency Reform and the Revival of the German Economy,” Economics, XVI, 1949, pp. 122142, and Klopstock Fred H., “Monetary Reform in Western Germany,” Journal of Political Economy, LVII, 1949, pp. 279292.

15 Cf. Lutz F. A., op. cit.

16 Monatsberichte der Bank Deutscher Länder, October, 1949, p. 75.

17 Cf. Heller Walter W., “Tax and Monetary Reform in Occupied Germany,” National Tax Journal II, 1949, p. 227.

18 Mendershausen Horst, “Prices, Money and the Distribution of Goods in Postwar Germany,” American Economic Review, XXXIX, 1949, p. 663.

19 Monatsberichte der Bank Deutscher Länder, July, 1949, p. 18.

20 Monatsberichte der Bank Deutscher Länder, August, 1949, p. 4.

21 Ibid., October, 1949, p. 75.

22 Ibid., August, 1949, p. 32.

23 At the meeting of the American Economic Association in December, 1949, Walter W. Heller pointed out these tools in his article “The Role of Fiscal-Monetary Policy in German Economic Recovery.”

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The Review of Politics
  • ISSN: 0034-6705
  • EISSN: 1748-6858
  • URL: /core/journals/review-of-politics
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